FAMILY FINANCE

LOSING YOUR JOB A FEW YEARS BEFORE YOUR PLANNED RETIREMENT AGE DOESN’T HAVE TO BE A CATASTROPHE

Losing your job a few years before retirement doesn’t have to be a catastrophe.

Lorenz Fischer* found his career as a high-tech systems manager unexpectedly terminated last year when his company was bought out by another. He became superfluous and departed without a company pension and just a year’s salary, $16,000 of which he promptly rolled into his RRSP and the balance went into his non-registered investments. His former salary, $12,000 a month, is history. Frugal, he now wonders if, at the age of 55, he has sufficient money for another 30 or 40 years of life left in his portfolio. Even without a job, Fischer’s life is pleasant. He has a net worth of about $2.8 million, although a third of that is his $1-million house and another $75,000 is in antiques. That still leaves more than $1.7 million, which is currently well invested in diversified stocks and exchange-traded funds. His three-bedroom house has a fine view of the ocean, he drives a classic Benz convertible on sunny weekends, cooks for friends and travels to Europe every few years. Yet he laments his loss of employment. “I have been forced to retire prematurely, five years before I had intended,” Fischer says.

Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., is optimistic Fischer canmakethenumberswork.“Lorenz is fundamentally a saver,” he says. “The problem is to create a road map that will keep him out of trouble. If we do it and he sticks to the plan, he’ll make it through his involuntary retirement without financial grief.”

Fischer doesn’t have a mortgage or other debts, nor a spouse or children. His monthly expenses, net of savings and property taxes that he has deferred until the sale of his house, as B.C. allows for residents 55 and over, add up to just $1,900. He can cover that using approximately $836,000 of his non-registered financial assets returning just $25,080 or 3% a year after inflation. He will also have $1,284 frompresent TFSAsavings at the samereturn rate. After average 10% tax, he would have $1,980 a month to spend. At 65, he can add his annual Canada Pension Plan of $9,345 and Old Age Security of $6,765 to push income to $42,474 a year or $3,000 a month after 15% average income tax.

Fischer could start to draw from his $800,000 RRSP at the assumed net rate of 3%, or $24,000 a year, to average out income and taxes or wait and allow earnings to compound until he turns 71 and has to convert to a RRIF, buy an annuity or take all cash and pay a huge tax bill. Waiting to take RRSP money through a RRIF could boost the tax rate later in life, but years of tax-free accumulation within the RRSP and during the RRIF make up for that, Moran says. It’s better to